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Management’s Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of our balance sheets and statements of
operations. This section should be read in conjunction with our Annual Report on
Form 10-K for the year ended
financial statements and accompanying notes to these financial statements.
Overview
CoJax is a growth-oriented independent exploration and production company based
in
production, acquisition, and exploration activities currently focused in the
Business Description and Plan of Operation
CoJax is currently engaged in oil and natural gas acquisition, exploration,
development, and production in
properties while continuing to pursue acquisitions of oil and gas properties
with upside potential.
Our goal is to increase stockholder value by investing in oil and natural gas
projects with attractive rates of return on capital employed. We plan to achieve
this goal by exploiting and developing our existing oil and natural gas
properties and pursuing strategic acquisitions of additional properties, while
remaining cash flow positive, maintaining low operating costs, and striving to
show a gain in annual production while reducing the Company’s debt.
Executive Summary – Third Quarter 2022 Developments and Highlights
COVID-19 Impact
In
COVID-19 vaccination in
front-line workers and the elderly but were soon made available to all adults.
The daily new infections peaked in the first quarter of 2021 and have seen an
overall steady decline, giving states the ability to reopen to certain extents.
In
package which included direct payments to qualifying individuals, extended
unemployment benefits, and state and local assistance. The demand for oil and
gas is expected to increase as the economy recovers, which should strengthen oil
prices. While oil prices have increased to pre-pandemic levels, volatility due
to
and natural gas may continue.
Results of Operations – For the Three and Nine Months Ended
and 2021
Oil and natural gas sales. For the nine months ended
and natural gas sales revenue decreased
same period during 2021, as a result of the Company’s acquisition of
Energy, LLC
no sales of oil and natural gas.
Oil and gas production costs. Lease operating expenses were
nine months ended
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expenses were
for the three months ended
Production taxes. Production taxes as a percentage of oil and natural gas sales
were 6%, or
nine months ended
relatively steady unless we make acquisitions in other states with differing
production tax rates or the state of
Depreciation, depletion, amortization, and accretion. Our depreciation,
depletion, amortization, and accretion expenses were
ended
the three months ended
General and administrative expenses. General and administrative expense
increased
compared to
in general and administrative expense is primarily attributable to stock-based
compensation-related expenses and the acquisition of
General and administrative expense increased
months ended
ended
primarily attributable to increased legal, stock transfer, and audit fees.
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2022 2021 2022 2021
General and administrative expense
(excluding Stock Based Compensation)
Stock Based Compensation
- - - 220,000
General and administrative expense
Interest expense. Interest expense increased
settlement of outstanding legal fees, to
30, 2021
compared to
due to the settlement of prior loans of the Company’s Executive Chairman.
Net income (loss). For the nine months ended
had a net loss of
months ended
the Company had a net loss of
the three months ended
Sales volumes and commodity prices received
The following table presents our sales volumes and received pricing information
for the three and nine-month periods ended
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2022 2021 2022 2021
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Oil volume (Bbls) - - - 183
Natural gas volume (Mcf) - - - -
Total Production (Boe) - - - 183
Average Sales Price
Oil price (per Bbl) - - - 44.59
Gas price (per Mcf) - - - -
Total per BOE - - - 44.59
Capital Resources and Liquidity
For the nine months ended
used in operating activities for the nine months ended
difference in the cash used in operations was the difference in stock payments
to vendors for previous services from 2022 to 2021. The Company had net cash
used in investing activities of
compared to
for the nine months ended
2021.
The COVID-19 pandemic reduced global economic activity and negatively impacted
energy demand during the previous twelve months. Demand for oil and natural gas
is slowly returning to pre-pandemic levels as COVID-19 vaccine rates and
economic activity have increased. Additionally, we have implemented several
additional initiatives to maximize free cash flow, reduce our debt level,
maximize our liquidity position and ultimately realize greater shareholder
value.
Capital Resources for Future Acquisition and Development Opportunities
We continuously evaluate potential acquisitions and development opportunities.
To the extent possible, we intend to acquire producing properties and/or
developed undrilled properties rather than exploratory properties. We do not
intend to limit our evaluation to any one state. We presently have no intention
to evaluate offshore properties or properties located outside of
States
Effects of Inflation and Pricing
The oil and natural gas industry are very cyclical, and the demand for goods and
services of oil field companies, suppliers, and others associated with the
industry puts pressure on the economic stability and pricing structure within
the industry. Typically, as prices for oil and natural gas increase, so do all
associated costs. Material changes in prices impact the current revenue stream,
estimates of future reserves, borrowing base calculations of bank loans, and the
value of properties in purchase and sale transactions. Material changes in
prices can impact the value of oil and natural gas companies and their ability
to raise capital, borrow money and retain personnel. We anticipate business
costs will vary in accordance with commodity prices for oil and natural gas, and
the associated increase or decrease in demand for services related to production
and exploration.
Off Balance Sheet Arrangements
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The Company does not have any off-balance sheet arrangements, and it is not
anticipated that the Company will enter into any off-balance sheet arrangements.
Disclosures About Market Risks
Like other natural resource producers, the Company faces certain unique market
risks associated with the exploration and production of oil and natural gas.
The most salient risk factors are the volatile prices of oil and gas,
operational risks, the ability to integrate properties and businesses, and
certain environmental concerns and obligations.
Oil and Gas Prices
The price we receive for our oil and natural gas will heavily influence our
revenue, profitability, access to capital, and future rate of growth. Oil and
natural gas are commodities, and, therefore, their prices are subject to wide
fluctuations in response to relatively minor changes in supply and demand. The
prices we receive for our production depend on numerous factors beyond our
control. These factors include, without limitation, the following: worldwide and
regional economic conditions impacting the global supply and demand for oil and
natural gas; the price and quantity of imports of foreign oil and natural gas;
the level of global oil and natural gas inventories; localized supply and demand
fundamentals; the availability of refining capacity; price and availability of
transportation and pipeline systems with adequate capacity; weather conditions,
natural disasters, and public health threats; governmental regulations;
speculation as to the future price of oil and the speculative trading of oil and
natural gas futures contracts; price and availability of competitors’ supplies
of oil and natural gas; energy conservation and environmental measures;
technological advances affecting energy consumption; the price and availability
of alternative fuels and energy sources; and domestic and international drilling
activity.
A substantial or extended decline in oil or natural gas prices may result in
impairments of our proved oil and gas properties and may materially and
adversely affect our future business, financial condition, cash flows, and
results of operations.
Transportation of
CoJax is presently committed to using the services of the existing gatherers in
its present areas of production. This gives such gatherers certain short-term
relative monopolistic powers to set gathering and transportation costs.
Obtaining the services of an alternative gathering company would require
substantial additional costs since an alternative gatherer would be required to
lay a new pipeline and/or obtain new rights-of-way.
Competition in the Oil and Natural Gas Industry
We operate in a highly competitive environment for developing and acquiring
properties, marketing oil and natural gas, and securing equipment and trained
personnel. As a relatively small oil and natural gas company, many large
producers possess and employ financial, technical, and personnel resources
substantially greater than ours. Those companies may be able to develop and
acquire more prospects, and productive properties than our financial or
personnel resources permit. It is also significant that more favorable prices
can usually be negotiated for larger quantities of oil and/or gas products, such
that CoJax views itself as having a price disadvantage compared to larger
producers.
Retention of Key Personnel
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We depend to a large extent on the services of our officers. These individuals
have extensive experience in the energy industry, as well as expertise in
evaluating and analyzing producing oil and natural gas properties and drilling
prospects, maximizing production from oil and natural gas properties and
developing and executing financing strategies. The loss of any of these
individuals could have a material adverse effect on our operations and business
prospects. Our success may be dependent on our ability to continue to hire,
retain and utilize skilled executive and technical personnel.
Environmental and Regulatory Risks
Our business and operations are subject to and impacted by a wide array of
federal, state, and local laws and regulations governing the exploration for and
development, production, and marketing of oil and natural gas, the operation of
oil and natural gas wells, taxation, and environmental and safety matters. Many
laws and regulations require drilling permits and govern the spacing of wells,
rates of production, water, and waste use and disposal, prevention of waste
hydraulic fracturing, and other matters. From time to time, regulatory agencies
have imposed price controls and limitations on production in order to conserve
supplies of oil and natural gas. In addition, the production, handling, storage,
transportation, and disposal of oil and natural gas, byproducts thereof, and
other substances and materials produced or used in connection with oil and
natural gas operations are subject to regulation under federal, state, and local
laws and regulations.
Compliance with these regulations may constitute a significant cost and effort
for CoJax. To date, no specific accounting for environmental compliance has
been maintained or projected by CoJax. CoJax does not presently know of any
environmental demands, claims, adverse actions, litigation, or administrative
proceedings in which it or the acquired properties are involved or subject to or
arising out of its predecessor operations.
In the event of a violation of environmental regulations, these environmental
regulatory agencies have a broad range of alternative or cumulative remedies,
including ordering a cleanup of any spills or waste material and restoration of
the soil or water to conditions existing prior to the environmental violation;
fines; or enjoining further drilling, completion or production activities.
Going Concern
There can be no assurance that the Company will be able to achieve its business
plan, raise additional capital, or secure the additional financing necessary to
implement its current operating plan. The accompanying financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
The Company has yet to achieve profitable operations, expects to incur further
losses in the development of its business, has negative cash flows from
operating activities, and is dependent upon future issuances of equity or other
financings to fund ongoing operations, all of which raises substantial doubt
about the Company’s ability to continue as a going concern. The Company’s
ability to continue as a going concern is dependent upon its ability to generate
future profitable operations or to obtain the necessary financing from
shareholders or other sources to meet its obligations and repay its liabilities
arising from normal business operations when they come due. Management has no
formal plan in place to address this concern. Still, it considers that the
Company will be able to obtain additional funds through equity financing or
related party advances. However, there is no assurance of additional funding
being available or on acceptable terms, if at all.
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